Retirement Planning: How Much is Enough?

Trying to pinpoint the right dollar amount to put away for your retirement nest egg can feel daunting. While there are rules of thumb, there is no standard retirement savings amount. So, how much money do you need to save for retirement? The short answer – it depends.

When and where you plan to retire, your health outlook and desired retirement lifestyle are all critical elements to consider. Do you plan to retire when you’re 55 or work into your 70s? Will you live in a big city apartment, a suburban retirement community or a beachside cabana? Are you in good health, or is it likely you or your spouse will require long-term care? Ask yourself these types of questions before meeting with your financial advisor. Understanding the type of retirement lifestyle you want significantly affects how much you need to save.

Retirement Savings Rules of Thumb

Even though there is no “one-size-fits-all” retirement savings amount, you can use a few rules of thumb to help get a clearer picture of how much you need to save.

The 80% Rule

Experts recommend that your yearly income during retirement should be at least 80% of your pre-retirement income. Withdrawals from your retirement accounts, such as your 401(k) and IRA, savings, Social Security benefits and pension generate your annual retirement income.

The 4% Rule

The 4% rule is a guideline used to estimate your yearly withdrawal rate from your retirement assets. In your first year of retirement, you withdraw 4% of your retirement nest egg to account for your expenses. That initial number is now the basis for your annual retirement account withdrawals. To maintain your purchasing power throughout your retirement, you need to take inflation into account. To account for inflation, multiply your yearly withdrawal amount by the annual inflation rate.

The 15% Rule

If you start saving for retirement as a young adult, your savings goals do not have to be as aggressive as if you start saving later in life. Experts recommend that young workers save at least 15% of their gross annual salary. This 15% is not all out-of-pocket. Instead, the savings come from your 401(k), the 401(k) contribution percentage your employer will match and some out-of-pocket contribution.

Multiply Your Salary

By the time you reach your full-retirement age, or 67-years old according to the Social Security Administration, you should aim to have saved at least 10x your annual salary in your retirement nest egg. You can set incremental savings goals based on your age. At 30-years-old, have 1x your salary saved. At 45-years-old, have 4x your annual salary saved. At 55-years-old, have 7x your annual salary saved. Continue this pattern until you reach your 10x annual salary savings goal at 67-years-old.

Calculating Your Retirement Savings Goal

No matter what age you start saving, there are steps you can take to build a sizable nest egg to get you through your retirement. You can start by getting a savings estimate using a retirement savings calculator. However, this is just an estimate. You should meet with a financial advisor to develop a retirement plan that meets your unique needs and savings goals. Make sure you revisit your retirement plan on a regular basis. As you get closer to your retirement age, your retirement plan and savings goal needs to be more concrete. Your financial advisor can ensure that you are on the right track for your retirement savings goals.

The information contained herein is for information purposes only, is not designed to address your financial situation or particular needs and does not constitute the rendering of tax or legal advice. You should consult with your tax advisor or attorney for advice pertinent to your personal situation. Asset Allocation, Alternative Investment and Hedging/Diversification strategies are intended to mitigate the overall risk within your portfolio. Some strategies may be subject to a higher degree of market risk than others. An investor should understand the costs, cash flows and risks inherent in a strategy prior to making any investment decision. There are no guarantees that any strategy presented will perform as intended. Fifth Third Private Bank is a division of Fifth Third Bank offering banking, investment and insurance products and services. Fifth Third Bancorp provides access to investments and investment services through various subsidiaries, including Fifth Third Securities. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered broker-dealer and registered investment advisor. Registration does not imply a certain level of skill or training.

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Fifth Third Private Bank is a division of Fifth Third Bank offering banking, investment and insurance products and services. Fifth Third Bancorp provides access to investments and investment services through various subsidiaries, including Fifth Third Securities. Fifth Third Securities is the trade name used by Fifth Third Securities, Inc., member FINRA/SIPC, a registered broker-dealer and registered investment advisor registered with the U.S. Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training.

Asset Allocation, Alternative Investment and Hedging/Diversification strategies are intended to mitigate the overall risk within your portfolio. Some strategies may be subject to a higher degree of market risk than others. An investor should understand the costs, cash flows and risks inherent in a strategy prior to making any investment decision. There are no guarantees that any strategy presented will perform as intended.

The information contained herein is for information purposes only, is not designed to address your financial situation or particular needs and does not constitute the rendering of tax or legal advice. You should consult with your tax advisor or attorney for advice pertinent to your personal situation.

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